April 3, 2025 • 12 mins
Railroads and trucking companies are facing headwinds to 1Q earnings from the impact of severe weather on volume and costs, coupled with higher fuel prices. In this Talking Transports podcast, Lee Klaskow, Bloomberg Intelligence senior transportation and logistics analyst, previews what could be in store for the truckload, less-than-truckload (LTL) and railroad industries during 1Q earnings season. Railroads are poised for adjusted EPS growth, while truckload carriers may face flattish growth. Mid-single digit revenue per hundredweight growth, excluding fuel surcharges, won’t be enough to offset the deleveraging impact of lower tonnage on margins. The demand outlook isn’t encouraging, given the ISM Manufacturing Index, a good proxy for LTL demand, went back into contraction territory in March, where it has been in 27 of the last 29 months. The impact from tariffs on inflation and demand will drive the earnings picture for truckers and railroads moving forward.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:07):
Hi everyone, this is Lee Klaskal and we're Talking Transports.
Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,
Lee Klaskal, Senior Freight transportation logistics analysts at Bloomberg Intelligence,
Bloomberg's in house research arm, made up of almost five
hundred analysts and strategists around the globe. Before diving in
little public service announcement, Your support is instrumental to keep
(00:29):
bringing a great guest and conversations to you are listeners,
so please if you enjoyed this podcast, share it, like
it and leave a comment, And if you have any
ideas for future episodes or just want to talk transports,
hit me up on the Bloomberg terminal, on LinkedIn or
on Twitter at Logistics Lee. Now onto our episode. Today,
(00:49):
we're doing something a little different. This is a bonus
episode and our guest is me. That's right. I'll be
previewing what to expect from the first quarter earning season
for the trucking and railroad industries, which kick off with
JB Hunt on April sixteenth. Let's start with the rails.
Severe weather's impact on volumes and costs, coupled with higher
(01:12):
fuel prices may weigh on the Bloomberg Intelligence Class one
rail peer group's first quarter results and could bring downside
risk to consensus adjusted EPs for mid single digit growth.
Longer term, President Donald Trump's trade policies may strain demand
and earnings for railroads. Progress on productivity and cost cutting
(01:35):
initiatives are crucial to mitigate any headwinds. Consensus projects adjusted
EPs growth of four point five percent in the first
quarter for the BI Class one rail peer group, which
we believe may need to be moved lower. Total rail
traffic growth is trending below first quarter estimates for four
out of the five public Class one rails based on
(01:56):
the Association of American Railroads weekly data up This is
largely due to severe weather that strained volumes and operations.
Looking further ahead, President Trump's protectionist trade policies could be inflationary,
weighing on consumer demand and industrial activity, which would pressure
(02:16):
volumes and earnings for the rest of the year. North
America commodity carloads are down one point five percent year
to date through March twenty second, according to data from.
Speaker 2 (02:26):
AAR Metals led the group lower, which were down nine
point three percent, followed by automotive, forest product and mineral
Agriculture carloads were one of the few bright spots, and
they were up around one point seven percent during the
time frame. North American intermodial volumes were up six point
(02:47):
six percent year to date through March twenty second, according
to data from AAR. Western Railroads, Union Pacific and Burlington
Northern are leading their peers higher fueled in part from
pull forward to demand ahead of any taris. Canadian National
is the only Class one railroad that declines an intermodal
from severe winter weather, flooding, and an earthquake which impacted
(03:09):
its operations. Successful implementation of cost cutting and productivity initiatives
will be critical to mitigate uncertain conditions. Management at Norfolk
Southern expects to realize one hundred and fifty million dollars
in productivity savings this year, which equates to around fifty
one cents a share consensuses one Q rail margins relatively
(03:31):
unchained from last year, projecting a median adjusted operating ratio
to improve by only five basis points from last year,
though volume and operational challenges from severe weather might spurred
downside to these estimates. Norfolk Southern could lead margin improvement
this quarter at around three hundred and fifty basis points,
according to.
Speaker 1 (03:51):
Consensus, as it continues to execute on its cost management efforts.
Norfolk Southern expects one hundred to one hundred and fifty
basis points an annual margin improvement over the long run
from its efficiency push. CSX may be the only rail
to see margins deterioration in the first quarter, with Consensus
projecting three hundred and fifty basis points as whether lower
(04:12):
call demand and lost income related to two construction projects
weigh on results. Railroads recoup about eighty five percent of
fuel costs through search charges. The climbs in fuel prices
post a head window fuel search charge revenues. Diesel prices
are eight percent lower on average in the first quarter
from last year, which could pressure revenue growth in the quarter.
(04:34):
Fuel prices are four percent higher on average from the
end of the fourth quarter, which could create a slight
headwindter margins given the search charge lag relative to the
spot market by up to sixty days. Lower oil prices
can reduce rails competitiveness versus trucking by shrinking the saving
shippers get from using rails, especially for shorter hauls. The
(04:56):
US Energy Information Administration forecasts diesel fuel prices full three
point six percent and twenty twenty five, following the eleven
percent drop from last year. Despite these challenges, railroad shares
are outperforming the broader markets as well as their truckload
and less than truckload piers. The BI Class one railroad
peer group is down only point five percent year to
(05:18):
date through March thirty first, compared with the S and
P five hundreds four point seven percent slump. However, there
are some variations within the group. CSX has the largest decline,
down nine percent, due to inclement weather and construction expenses.
Canadian National has the second biggest drop, down four percent,
also due to severe weather, flooding, and earthquakes. On the
(05:41):
other hand, Pacific has gained the most of this year,
up four percent, on strong intermodal growth and its efficiency gains.
Let's turn our attention to the LTL carriers. This year
may not start strong for North American lesson truckload carriers,
with EPs set to drop a median eighteen percent cent
for the BILTL peer group based on consensus. Severe winter weather,
(06:05):
a week manufacturing backdrop, and uncertainty around tariffs could pressure
LTL carriers earnings. Among the greatest risks to demand outlook
are the effects of US tariffs and the softening industrial economy.
The ISM Manufacturing Index, a good proxy for LTL demand,
went back into contraction territory in March, where it has
(06:28):
been in twenty seven of the last twenty nine months.
Tonnage LTL tonage, that is, has been strained for most
carriers in the first quarter so far. Old Dominion had
a seven point one percent decline through February, while XPO
deteriorated eight point three percent. Both of these performances are
trending below consensus. That being said, March can make or
(06:51):
break a carrier's quarter, since January and February typically are
the weakest months of the year for LTL demand. The
tougher volume backdrop could also weigh on margins from the
operational deleveraging effect. The group's media and adjusted operating ratio
may deteriorate two hundred and sixty five basis points in
(07:12):
the first quarter based on consensus. Discipline pricing might not
be enough to mitigate the effects of lower volume on
the top line, with revenue for the top LTL carriers
poise to fall a median one point eight percent based
on consensus old Dominions revenue per hundredweight excluding fuel search
charges was up four point three percent through February. We
(07:36):
believe LTL carriers can still generate mid single digit rate
growth despite the challenging demand backdrop. The industry is consolidated
and the players have shown pricing discipline through the cycle.
Carriers are extremely leveraged to pricing, as it takes about
three hundred basis points of tonnage growth to offset one
(07:56):
hundred basis points and rate declines. The effects of severe
winter weather on volumes and operations may also hurt profitability
during the quarter. Our noted that it had the greatest
number of service center closings in January and eleven years
because of the inclimate weather. Now let's shift gears and
talk about the truckload market. Truckload carriers might not be
(08:20):
able to escape revenue declines this quarter, though they could
keep earning steady, with consensus projecting only a one percent
decline in EPs from last year for the Bipure group.
A recovery and freight rates may take longer given the
impact tariffs could have on the overall economy. Truckload conditions
have had a bit of a mixed start to the year,
(08:41):
those spot rates are inching higher in the first quarter.
Contractual rates are off from last year. Average spot rates
excluding fuel search charges gained one point four percent in
the first quarter from last year based on truckstop data,
while contract rates declined one point six percent according to
data from eight Though FDR is forecasting one point six
(09:04):
percent growth in loads this year, there may be some
volatility from the impact of tariffs, which could be inflationary
in way on freight demand. Additional supply exits will be
critical for spot rates to continue to move higher. Public
carriers have very little exposure to the spot market, but
it's seen as a good indicator for where contractual rates
are heading. Reefer or temperature controlled rates are leading the weakness,
(09:28):
followed by flatbed and drive in. Contractual rates could come
under further pressure this year if the Trump administration's tariff
policies strains the volume outlook. Trump did say that the
US economy faces a period of transition that will likely
temper freight demand, which may derail the spot in contractual recovery.
(09:48):
The spot market has continued to tighten in the first quarter,
with with truck stops. Market Demand Index or the MDI
index twenty nine percent higher in the first quarter, the
fifth can senttive quarter of annual growth. This was driven
by a sixteen percent dropping capacity and a nine percent
increase in truckloads. Though supply may keep exiting steadily, demand
(10:11):
could be strained by impacts from US trade policies. The
University of Michigan's preliminary March consumer Sentiment index came in
at fifty seven point nine, twenty seven percent below a
year ago and eight point one percent worse than consensus.
Survey responded cited uncertainty regarding the economic policies as a
key factor for their reduced optimism. FDR forecast average truck
(10:36):
utilization rates to improve by two hundred and sixty basis
points to ninety five point five percent by December of
this year and reached ninety six point eight percent by
the end of next year. Both of these numbers are
well above the twenty year average of ninety one percent,
a good sign. Worsening economic conditions could result in some
downside to these expectations, Though revenue declines at truckload carrier
(11:00):
could continue in the first quarter, earnings may get some reprieve,
with EPs expected to be down only one percent from
last year for the bi acid based truckload group, US
truckloads might rise one point six percent in twenty twenty
five after a slight point two percent gain in twenty
twenty four based on FTR projections. It's worth noting the
(11:21):
one point six percent it's about forty basis points below
consensus for where US GDP growth is expected, which is
around two percent. Recent earnings commentary from key retailers such
as Coal's, Target and Macy's indicate that consumer spending has
already moderated due to economic uncertainty. The economic outlook will
(11:45):
be a large driver in truckload earnings growth. The probability
of a recession has increased thirty to thirty percent, according
to consensus on the Bloomberg Terminal, after reaching a low
of twenty percent in late December, Though analysts estimates call
for a medium of thirty eight percent growth and adjusted
EPs for the truckload group in twenty twenty five. That
(12:08):
may move lower if the freight recovery is pushed further out.
Truckload carriers also face rising labor and insurance expenses, which
will strain margins. Carriers are up against higher insurance premiums
and costs per claims for accidents involving their trucks. That's
our preview for the earnings for railroads and trucking companies.
(12:33):
That's all for this episode, and I hope you learned
a little bit of what to expect for first quarter
earnings for the trucking and railroad industries. This is Lee
Clasical and thanks for talking transports with me until next time.
By now
Hi everyone, this is Lee Klaskal and we're Talking Transports.
Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,
Lee Klaskal, Senior Freight transportation logistics analysts at Bloomberg Intelligence,
Bloomberg's in house research arm, made up of almost five
hundred analysts and strategists around the globe. Before diving in
little public service announcement, Your support is instrumental to keep
(00:29):
bringing a great guest and conversations to you are listeners,
so please if you enjoyed this podcast, share it, like
it and leave a comment, And if you have any
ideas for future episodes or just want to talk transports,
hit me up on the Bloomberg terminal, on LinkedIn or
on Twitter at Logistics Lee. Now onto our episode. Today,
(00:49):
we're doing something a little different. This is a bonus
episode and our guest is me. That's right. I'll be
previewing what to expect from the first quarter earning season
for the trucking and railroad industries, which kick off with
JB Hunt on April sixteenth. Let's start with the rails.
Severe weather's impact on volumes and costs, coupled with higher
(01:12):
fuel prices may weigh on the Bloomberg Intelligence Class one
rail peer group's first quarter results and could bring downside
risk to consensus adjusted EPs for mid single digit growth.
Longer term, President Donald Trump's trade policies may strain demand
and earnings for railroads. Progress on productivity and cost cutting
(01:35):
initiatives are crucial to mitigate any headwinds. Consensus projects adjusted
EPs growth of four point five percent in the first
quarter for the BI Class one rail peer group, which
we believe may need to be moved lower. Total rail
traffic growth is trending below first quarter estimates for four
out of the five public Class one rails based on
(01:56):
the Association of American Railroads weekly data up This is
largely due to severe weather that strained volumes and operations.
Looking further ahead, President Trump's protectionist trade policies could be inflationary,
weighing on consumer demand and industrial activity, which would pressure
(02:16):
volumes and earnings for the rest of the year. North
America commodity carloads are down one point five percent year
to date through March twenty second, according to data from.
Speaker 2 (02:26):
AAR Metals led the group lower, which were down nine
point three percent, followed by automotive, forest product and mineral
Agriculture carloads were one of the few bright spots, and
they were up around one point seven percent during the
time frame. North American intermodial volumes were up six point
(02:47):
six percent year to date through March twenty second, according
to data from AAR. Western Railroads, Union Pacific and Burlington
Northern are leading their peers higher fueled in part from
pull forward to demand ahead of any taris. Canadian National
is the only Class one railroad that declines an intermodal
from severe winter weather, flooding, and an earthquake which impacted
(03:09):
its operations. Successful implementation of cost cutting and productivity initiatives
will be critical to mitigate uncertain conditions. Management at Norfolk
Southern expects to realize one hundred and fifty million dollars
in productivity savings this year, which equates to around fifty
one cents a share consensuses one Q rail margins relatively
(03:31):
unchained from last year, projecting a median adjusted operating ratio
to improve by only five basis points from last year,
though volume and operational challenges from severe weather might spurred
downside to these estimates. Norfolk Southern could lead margin improvement
this quarter at around three hundred and fifty basis points,
according to.
Speaker 1 (03:51):
Consensus, as it continues to execute on its cost management efforts.
Norfolk Southern expects one hundred to one hundred and fifty
basis points an annual margin improvement over the long run
from its efficiency push. CSX may be the only rail
to see margins deterioration in the first quarter, with Consensus
projecting three hundred and fifty basis points as whether lower
(04:12):
call demand and lost income related to two construction projects
weigh on results. Railroads recoup about eighty five percent of
fuel costs through search charges. The climbs in fuel prices
post a head window fuel search charge revenues. Diesel prices
are eight percent lower on average in the first quarter
from last year, which could pressure revenue growth in the quarter.
(04:34):
Fuel prices are four percent higher on average from the
end of the fourth quarter, which could create a slight
headwindter margins given the search charge lag relative to the
spot market by up to sixty days. Lower oil prices
can reduce rails competitiveness versus trucking by shrinking the saving
shippers get from using rails, especially for shorter hauls. The
(04:56):
US Energy Information Administration forecasts diesel fuel prices full three
point six percent and twenty twenty five, following the eleven
percent drop from last year. Despite these challenges, railroad shares
are outperforming the broader markets as well as their truckload
and less than truckload piers. The BI Class one railroad
peer group is down only point five percent year to
(05:18):
date through March thirty first, compared with the S and
P five hundreds four point seven percent slump. However, there
are some variations within the group. CSX has the largest decline,
down nine percent, due to inclement weather and construction expenses.
Canadian National has the second biggest drop, down four percent,
also due to severe weather, flooding, and earthquakes. On the
(05:41):
other hand, Pacific has gained the most of this year,
up four percent, on strong intermodal growth and its efficiency gains.
Let's turn our attention to the LTL carriers. This year
may not start strong for North American lesson truckload carriers,
with EPs set to drop a median eighteen percent cent
for the BILTL peer group based on consensus. Severe winter weather,
(06:05):
a week manufacturing backdrop, and uncertainty around tariffs could pressure
LTL carriers earnings. Among the greatest risks to demand outlook
are the effects of US tariffs and the softening industrial economy.
The ISM Manufacturing Index, a good proxy for LTL demand,
went back into contraction territory in March, where it has
(06:28):
been in twenty seven of the last twenty nine months.
Tonnage LTL tonage, that is, has been strained for most
carriers in the first quarter so far. Old Dominion had
a seven point one percent decline through February, while XPO
deteriorated eight point three percent. Both of these performances are
trending below consensus. That being said, March can make or
(06:51):
break a carrier's quarter, since January and February typically are
the weakest months of the year for LTL demand. The
tougher volume backdrop could also weigh on margins from the
operational deleveraging effect. The group's media and adjusted operating ratio
may deteriorate two hundred and sixty five basis points in
(07:12):
the first quarter based on consensus. Discipline pricing might not
be enough to mitigate the effects of lower volume on
the top line, with revenue for the top LTL carriers
poise to fall a median one point eight percent based
on consensus old Dominions revenue per hundredweight excluding fuel search
charges was up four point three percent through February. We
(07:36):
believe LTL carriers can still generate mid single digit rate
growth despite the challenging demand backdrop. The industry is consolidated
and the players have shown pricing discipline through the cycle.
Carriers are extremely leveraged to pricing, as it takes about
three hundred basis points of tonnage growth to offset one
(07:56):
hundred basis points and rate declines. The effects of severe
winter weather on volumes and operations may also hurt profitability
during the quarter. Our noted that it had the greatest
number of service center closings in January and eleven years
because of the inclimate weather. Now let's shift gears and
talk about the truckload market. Truckload carriers might not be
(08:20):
able to escape revenue declines this quarter, though they could
keep earning steady, with consensus projecting only a one percent
decline in EPs from last year for the Bipure group.
A recovery and freight rates may take longer given the
impact tariffs could have on the overall economy. Truckload conditions
have had a bit of a mixed start to the year,
(08:41):
those spot rates are inching higher in the first quarter.
Contractual rates are off from last year. Average spot rates
excluding fuel search charges gained one point four percent in
the first quarter from last year based on truckstop data,
while contract rates declined one point six percent according to
data from eight Though FDR is forecasting one point six
(09:04):
percent growth in loads this year, there may be some
volatility from the impact of tariffs, which could be inflationary
in way on freight demand. Additional supply exits will be
critical for spot rates to continue to move higher. Public
carriers have very little exposure to the spot market, but
it's seen as a good indicator for where contractual rates
are heading. Reefer or temperature controlled rates are leading the weakness,
(09:28):
followed by flatbed and drive in. Contractual rates could come
under further pressure this year if the Trump administration's tariff
policies strains the volume outlook. Trump did say that the
US economy faces a period of transition that will likely
temper freight demand, which may derail the spot in contractual recovery.
(09:48):
The spot market has continued to tighten in the first quarter,
with with truck stops. Market Demand Index or the MDI
index twenty nine percent higher in the first quarter, the
fifth can senttive quarter of annual growth. This was driven
by a sixteen percent dropping capacity and a nine percent
increase in truckloads. Though supply may keep exiting steadily, demand
(10:11):
could be strained by impacts from US trade policies. The
University of Michigan's preliminary March consumer Sentiment index came in
at fifty seven point nine, twenty seven percent below a
year ago and eight point one percent worse than consensus.
Survey responded cited uncertainty regarding the economic policies as a
key factor for their reduced optimism. FDR forecast average truck
(10:36):
utilization rates to improve by two hundred and sixty basis
points to ninety five point five percent by December of
this year and reached ninety six point eight percent by
the end of next year. Both of these numbers are
well above the twenty year average of ninety one percent,
a good sign. Worsening economic conditions could result in some
downside to these expectations, Though revenue declines at truckload carrier
(11:00):
could continue in the first quarter, earnings may get some reprieve,
with EPs expected to be down only one percent from
last year for the bi acid based truckload group, US
truckloads might rise one point six percent in twenty twenty
five after a slight point two percent gain in twenty
twenty four based on FTR projections. It's worth noting the
(11:21):
one point six percent it's about forty basis points below
consensus for where US GDP growth is expected, which is
around two percent. Recent earnings commentary from key retailers such
as Coal's, Target and Macy's indicate that consumer spending has
already moderated due to economic uncertainty. The economic outlook will
(11:45):
be a large driver in truckload earnings growth. The probability
of a recession has increased thirty to thirty percent, according
to consensus on the Bloomberg Terminal, after reaching a low
of twenty percent in late December, Though analysts estimates call
for a medium of thirty eight percent growth and adjusted
EPs for the truckload group in twenty twenty five. That
(12:08):
may move lower if the freight recovery is pushed further out.
Truckload carriers also face rising labor and insurance expenses, which
will strain margins. Carriers are up against higher insurance premiums
and costs per claims for accidents involving their trucks. That's
our preview for the earnings for railroads and trucking companies.
(12:33):
That's all for this episode, and I hope you learned
a little bit of what to expect for first quarter
earnings for the trucking and railroad industries. This is Lee
Clasical and thanks for talking transports with me until next time.
By now
Host
Lee Klaskow
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